BAT Malaysia charts growth despite persistent tobacco black market

BRITISH American Tobacco (M) Bhd has marked a stronger turnaround for its 2Q FY2021 with a 31% year-on-year (yoy) jump in net profit to RM71.62 mil (2Q FY2021: RM54.61 mil; 1Q FY2021: RM63.11 mil) on the back of slight rise in revenue to RM595.8 mil (2Q FY2021: RM546.59 mil; 1Q FY2021: RM566.55 mil).

This pushes its 1H FY2021 net profit to RM134.73 mil or 27.8% higher from RM105.38 mil in the same period a year ago while its revenue rose 13% to RM1.16 bil from RM1.03 bil previously.

The BAT Malaysia board of has declared a second interim ordinary dividend of 24 sen/share – amounting to RM69 mil – to be paid out on Aug 20 to shareholders.

“We delivered a strong quarter with significant improvements across all key metrics,” commented BAT Malaysia’s managing director Jonathan Reed. “This was primarily due to the company’s 14% growth in domestic volume which outperformed the total legal industry recovery rate of 12%.”

The growth in volume led to a revenue growth of 13% or RM135 mil in 1H FY2021 compared with the same period a year ago.

Jonathan Reed

“Volume and revenue growth versus the same period last year reflect a differing movement control order (MCO) environment and embryonic progress by the Government in addressing the tobacco black market,” observed Reed.

“There are early signs that measures implemented during Budget 2021 are having a positive impact but levels of illegal cigarettes in Malaysia are still at crisis point. Over 57.9% of the tobacco market is dominated by criminal syndicates.”

In response to Budget measures targeting transhipment loopholes, these gangs have shifted their operations to coastal smuggling, according to Reed.

“The Government must enhance anti-smuggling enforcement in coastal areas,” he stressed.

“To effectively tackle the tobacco black market, enforcement must be accompanied by measures to address affordability pressures for consumers. There must be solutions to address the significant price difference between expensive legal and cheap black market products,” Reed highlighted.

BAT Malaysia’s total market share stood at 52.4%, registering an increase of 1.5 percentage point (ppt) compared with the same period last year.

The company’s portfolio grew in all segments with Dunhill growing by 2.7 ppt in the ‘premium’ segment, Peter Stuyvesant and Pall Mall by 1 ppt in the ‘aspirational premium’ segment, and Rothmans and KYO by 4.4 ppt in the ‘value-for-money’ (VFM) segment.

In addition to continuing efforts to mitigate the tobacco black market, Reed said it is also critical for the Government to introduce a regulatory framework for nicotine vaping products.

“Regulations would provide the 1.1 million Malaysians who vape with products of known quality and safety,” he justified.

“It would also establish a significant new revenue source for the Government. As part of our purpose of building A Better Tomorrow, BAT Malaysia would support the legalisation of the nicotine vapour category.”

At the close of today’s trading, BAT Malaysia was down 24 sen or 1.64% to RM14.42 with 241,600 shares traded, thus valuing the company at RM4.12 bil. – July 23, 2021

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